Recent reforms to the buy to let sector could lead to a pension crisis, according to the National Landlords Association.
In a statement, the NLA has warned that individuals are relying too heavily on property to fund their retirement and that recent tax changes could lead to a serious shortfall in their income after they leave work.
The NLA reports that 77% of landlords, approximately 1.8million people in the UK, say they are reliant on rental income from their residential property investment to fund their retirement, while market research by Mintel show that buy to let continues to be seen as a safe investment, with 68% of people saying it represents a good way to save for retirement.
Figures from the Office for National Statistics, however, estimate that the average retired household in the UK spends £21,770 per year, leaving a shortfall of more than £15,000 after they’ve taken the full basic state pension of £6,359.60.
It is this gap between the state funding and household’s actual financial needs which has led many to invest in property to save for retirement, but with recent tax changes such as Section 24 and the hike in Stamp Duty taking effect, rental income may no longer be enough to make up the shortfall for many households.
NLA CEO Richard Lambert said; “As a consequence of government policy over recent decades almost two million people are reliant on their property to fund their later years, but the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.
“Around a quarter (27%) of UK landlords are already retired, and 37 per cent are aged 55 or over2, so there is a pressing need to tackle these issues without delay”.
In order to tackle the problem before it becomes a crisis, the NLA is calling on the Government to help those affected adjust their financial plans by tapering the amount of capital gains tax landlords will need to pay when they come to selling their property, based on how long they have owned and let it out for.
Mr Lambert continued; “Landlords who have invested in residential property for the long term are different from short term speculators who buy and develop properties, and this should be recognised when it comes to how much capital gains tax they pay when they decide to sell.
“It is not always in the best interests for landlords to continue to manage residential property into later life. A capital gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity or invest in more liquid, lower risk assets to fund their retirement instead”.
If you’re a landlord worried about how recent tax changes are affecting your ability to save for your retirement, or you have unmanageable property debt, contact Landlord Debt Advisory on 0161 222 4311 or online at landlorddebtadvisory.com.